Price Fixing

Predatory Pricing
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Price fixing is an agreement between business competitors to sell the same product (business) or service at the same price.In general, it is an agreement intended to ultimately push the price of a product as high as possible, leading to profits for all the sellers. Price-fixing can also involve any agreement to fix, peg, discount or stabilize prices. The principal feature is any agreement on price, whether express or implied. For the buyer, meanwhile, the practice results in a phenomenon similar to price gouging.

Methods of price fixing can include selling at a common target price; setting a common "minimum" price; buying the product from a supplier at a specified "maximum" price; adhering to a price book or list price; engagement in cooperative price advertising; standardizing Credit (finance) terms offered to purchasers; using uniform discounts and allowances; limiting discounts and allowancess; discontinuing a free service or fixing the price of one component of an overall service; adhering uniformly to previously-announced prices and terms of sale; establishing uniform costs and markup (business); imposing mandatory surcharges; purposefully reducing output or sales; or purposefully sharing or "pooling" markets, territories, or customers.

Generally, price fixing is law, but it may nevertheless be tolerated or even sanctioned by some governments at various times, particularly among those whose countries are developing nations. See also Collusion.

In neo-classical economics, price fixing is inefficient: the anti-competitive agreement by producers to fix prices above the market price transfers some of the consumer surplus to those producers and also results in a deadweight loss.

Price-fixing (also referred to as price controlling) in the United States and Canada In the United States, price fixing can be prosecuted as a criminal felony offense under section 1 of the Sherman Antitrust Act. In Canada, it is an indictable criminal offence under section 45 of the Competition Act. Bid rigging is considered a form of price fixing and is illegal in both the United States (s.1 Sherman Act) and Canada (s.47 Competition Act). In the United States, agreements to fix, raise, lower, stabilize, or otherwise set a price are illegal per se.Antitrust Law Developments (2002); United States v. Socony-Vacuum Oil Co., 310 US 150 (1940) It does not matter if the price agreed upon is reasonable or for a good or altruistic cause; or if the agreement is explicit and formal or unspoken and tacit. In the United States, price-fixing also includes agreements to hold prices the same, discount prices (even if based on financial need or income), set credit terms, agree on a price schedule or scale, adopt a common formula to figure prices, banning price advertising, or agreeing to adhere to prices that one announces. The Antitrust Laws A Primer (1993); Art Publishers Association, Bulletin: Be Careful About Antitrust Law (Feb. 2000). Although price fixing usually means sellers agreeing on price, it can also include agreements among buyers to fix the price at which they will buy products.

Under American law, exchanging prices among competitors can also violate the antitrust laws. This includes exchanging prices with either the intent to fix prices or if the exchange affects the prices individual competitors set. Proof that competitors have shared prices can be used as part of the evidence of an illegal price fixing agreement. Antitrust Law Developments (2002); Art Publishers Association, Bulletin: Be Careful About Antitrust Law (Feb. 2000). Experts generally advise that competitors avoid even the appearance of agreeing on price. Art Publishers Association, Bulletin: Be Careful About Antitrust Law (Feb. 2000).

Under U.S. law, price fixing is only illegal if it is intentional and comes about via communication or agreement between firms or individuals. It is not illegal for a firm to copy the price movements of a de facto market leader called price leadership, which has been seen to be the case in markets for breakfast cereals and cigarettes. But informal agreements or unspoken agreements to fix price also can violate the antitrust laws. The price-fixing laws apply to industries and professionals, for-profit concerns and non-profits and charities. The Antitrust Laws A Primer (1993); Antitrust Outline Northwestern University The United States Department of Justice Antitrust Division and United States Federal Trade Commission are responsible for enforcing federal price fixing laws; see also Sherman Antitrust Act. The Department of Justice handles both criminal and civil cases. As of 2004 under US law corporations may be fined up to $100 million for criminal price fixing; individuals can be charged and sentenced to prison sentences of up to 10 years for price-fixing violations. The Federal Trade Commission can prosecute firms for price fixing as a civil matter. Many State Attorneys General also bring antitrust cases and have antitrust offices, such as Virginia, New York, and California. Private individuals or organizations can bring their own lawsuits for triple damages for antitrust violations and also recover attorneys fees. Antitrust Enforcement ; National Association of Attorneys General Antitrust Project ; Art Publishers Association, Bulletin: Be Careful About Antitrust Law (Feb. 2000). .

Two books were published about the Archer Daniels Midland (ADM) price-fixing case, that occurred during the mid-1990s, by authors that conducted several years of extensive investigation: The Informant, by award-winning author and former New York Times writer, Kurt Eichenwald, and Rats In The Grain, by Ivy League lawyer, James B. Lieber. The ADM case was prosecuted in the USA but involved an international conspiracy. Criticism on legislation Economic libertarians such as the conclude that price fixing is inherently unstable and regulation does more harm than good. Companies can easily cheat on the cartel by secretly lowering its price and expanding in the market. New firms can enter the market. http://www.cato.org/pubs/regulation/regv12n2/reg12n2-debow.html

Price fixing in Australia Price fixing is illegal in Australia under the Trade Practices Act, the provisions of which are broadly similar to the US and Canadian prohibitions. The Act is administered and enforced by the Australian Competition and Consumer Commission.

Price-fixing cases in the rest of the world In countries other than the United States, Canada, Australia and within the European Union, price-fixing is not usually illegal and is often practised. When the agreement to control price is sanctioned by a multilateral treaty or is entered by sovereign nations as opposed to individual firms, the cartel may be protected from lawsuits and criminal antitrust prosecution. This explains, for example, why OPEC, the global Petroleum cartel, has not been prosecuted or successfully sued under U.S. antitrust law. International airline tickets have their prices fixed by agreement with the IATA, a practice for which there is a specific exemption in antitrust law.

Under the EU commission's leniency programme whistleblowing firms which co-operate with the anti-trust authority see their prospective penalties either wiped out or reduced.

In October 2005, the Korean company Samsung pleaded guilty to conspiring with other companies, including Infineon and Hynix Semiconductor, to fix the price of dynamic random access memory (DRAM) chips. Samsung was the third company to be charged in connection with the international cartel and was slapped with a $300M fine, the second largest antitrust penalty in US history. In October 2004, four executives from Infineon, a German chip maker, received reduced sentences of 4 to 6 months in federal prison and $250,000 in fines after agreeing to aid the DoJ with their ongoing investigation of the conspiracy.

In 2006, the Government of France fined 13 perfume brands and three vendors for price collusion between 1997 and 2000. The brands include L'Oreal (4.1m euro), Pacific Creation Perfumes (90,000 euro), Chanel, LVMH's Sephora (9.4mill euro) and Hutchison Whampoa's Marionnaud (12.8mil euro). International price fixing by private entities can be prosecuted under the antitrust laws of many countries. Examples of prosecuted international cartels are those that controlled the prices and output of lysine, citric acid, graphite electrodes, and bulk vitamins.

See also

Price control
Collusion
antitrust
cartel
monopoly
oligopoly
Variable pricing
Net Book Agreement
Vendor lock-in
Sherman Antitrust Act
US Department of Justice
Trade Practices Act 1974
List of corporate executives charged with crimes
Dram price fixing
Resale price maintenance

Footnotes

External links

US Department of Justice Antitrust Resource Manual
Identifying Horizontal Price Fixing in the Electronic Marketplace
SONY Accused of Price Fixing in the UK - Nov. 15, 2005
Antitrust Enforcement
Art Publishers Association, Bulletin: Be Careful About Antitrust Law (Feb. 2000)
US Department of Justice Website, Samsung Pleads Guilty to Price Fixing - Oct. 5, 2005
US Department of Justice Website, Infineon Pleads Guilty to Price Fixing - Oct. 2004
Antitrust settlement in Nevada price-fixing case
In Defense of Price Fixing by Sean Gabb
LVMH, L'Oreal, PPR fined for perfume price collusion; LVMH plans appeal Forbes

BBC NEWS | Business | Probe into chocolate price fixing
Canadian regulators launch an investigation into allegations of price fixing in the chocolate bar market.

BBC NEWS | Business | Price-fixing glass makers fined
Four big makers of flat glass are fined by the EU Commission for illegally co-ordinating price rises.

British Airways - Press Office
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